INFLATION AND ESCALATION BEST PRACTICES FOR COST …

INFLATION AND ESCALATION BEST PRACTICES FOR COST ANALYSIS OFFICE OF THE SECRETARY OF defense COST ASSESSMENT AND PROGRAM EVALUATION APRIL 2016 1. Background Reliable cost analysis is critical to defense management. The rates at which the prices of defense goods are expected to change are often important determinants of system cost. Well-researched forecasts of price growth help the Department to make sound acquisition trade-offs and adequately budget for weapon Section 2334(a)(3) of Title 10, United States Code, requires the Director, Cost Assessment and Program Evaluation (DCAPE) to periodically assess and update the cost indexes used by the Department to ensure that such indexes have a sound basis and meet the Department s needs for realistic cost estimation. DCAPE has published this guide to help analysts meet these objectives. Developed in collaboration with cost estimators and economists in OSD and the Military Departments, it provides best PRACTICES for incorporating price change into cost analysis.

Reliable cost analysis is critical to defense management. The rates at which the prices of defense goods are expected to change are often important determinants of system cost. Well-researched forecasts of price growth help the Department to make sound acquisition trade-offs and adequately budget for weapon systems.1

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